Federal Bank share price tanks massive 13%; Buy this stock; here is why

Federal Bank share price on Thursday tanked nearly 13 per cent after the private sector lender reported a fall of 43.5 per cent in its standalone net profit at Rs 144.99 crore for the March quarter of 2017-18, missing Street estimates. The fall was led by higher provisioning for bad loans, which jumped 129 percent at Rs 371.5 crore from Rs 162 crore on quarter on quarter basis. Federal Bank had posted a net profit of Rs 256.59 crore in the same period of 2016-17.

Reacting to the earnings, Federal Bank stock slipped 12.57 per cent to Rs 88.25 on the BSE, posting its biggest intraday percentage fall since October 2015. The stock is top percentage loser on Nifty Bank index.

Global brokerage Deutsche Bank maintained 'buy' rating on the stock, but cut target price to Rs 120 from Rs 130. "Cleaning up has an impact on earnings but core trends are also a shade weaker; operating metrics were also weak leading to weak NII growth," said Deutsche Bank in a results review report. 

"Overall Q4 results were weak and disappointing, but asset quality pain is now behind and steady growth should result in steady NIMs and profitability," it added. 

Of 28 brokerages covering the stock, 24 have a 'buy' rating or higher, two 'hold' and two on 'sell', reported Reuters. The median price target comes in at Rs 130.

Meanwhile, bank's bad loans grew as the gross non-performing assets (NPAs) rose to 3 per cent of the gross loans (Rs 2,795.62 crore) as on March 31, 2018 compared with 2.33 per cent (Rs 1,727.05 crore) at end-March 2017.

Net NPAs or bad loans were 1.69 per cent of the net loans (Rs 1,551.96 crore) as against 1.28 per cent (Rs 941.20 crore).

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Net profit (standalone) for 2017-18 was up at Rs 878.85 crore from Rs 830.79 crore in 2016-17. Income grew to Rs 10,911.98 crore from Rs 9,759.20 crore in the previous fiscal.

On consolidated basis, net profit during the full year was up by 6.6 per cent to Rs 909.65 crore from Rs 853.31 crore. Income grew to Rs 11,075.12 crore from Rs 9,867.04 crore in 2016-17.

The bank's board has recommended the payment of final dividend of Rs 1 per share and the same will be payable after shareholders approval in the annual general meeting of the bank.